As a country trying to find common ground between globalisation and Not In My Back Yard (NIMBY) parochialism, the issues around land ownership—particularly farming—are getting a tad muddy. Dita De Boni investigates.
We’re happy to see New Zealand dairy products and processing making inroads in the massive Chinese marketplace; the reverse tastes of sour milk. Witness the collective horror that greeted Hong Kong-based Natural Dairy when it kicked off a bid for $1.5 billion worth of local land and processing assets.
Natural Dairy front woman May Wang became the lightening rod for a heated debate about the rights and wrongs of selling off the country’s farmland — especially to the Chinese. Natural Dairy had in its sights the 20 central North Island farms formerly belonging to the Crafar family. The concern had already brought four of the family’s properties before its intentions hit the headlines last year.
Admittedly, May Wang’s business background didn’t come up roses, and yet, the fact the Crafars were $200 million in the hole, and had been accused of mistreating animals, seemed to disappear in the frenzy of disapproval the foray provoked. Comment boards and websites thrummed with fury — and often, anti-Chinese sentiment. Polls mirrored cyberspace commentary showing New Zealanders were largely opposed to the sale of farmland to foreigners.
One of the enduring legacies, and one might say by-products, of the Natural Dairy tilt is a lobby group established to fight offshore purchase of New Zealand farmland. But Save the Farm, a group of high profile, largely Auckland-based professionals, emphatically denies being anti-Chinese. It says it will be lobbying like mad in election year to ensure large farm properties remain firmly within New Zealand ownership.
“We are not focused on the Chinese specifically,” says spokesman Tony Bouchier. “We would like to see all sales to overseas parties put on hold until we have an informed debate at the least. We want to see our Overseas Investment Act strengthened to basically disallow all sales of sensitive agricultural land to parties who are not New Zealand citizens.”
The group has the backing of almost all political parties, except from National — at least in any overt way. Tony Bouchier says with land ownership causing headaches in New Zealand “since the Treaty of Waitangi” it behooves us not to make the same mistakes again. “Land is so important to New Zealanders that we want to ensure our connection to it remains vital — and that we preserve the competitive advantage our land gives us for future generations.”
Save the Farms claimed its first scalp at the end of 2010 when Government ministers decided to disallow Natural Dairy to purchase the Crafar estate. They claimed the backers of the bid had failed a “good character” test, and threw in a Serious Fraud Office investigation into the affairs of the company to boot.
In addition the Government, ever responsive to polls and public outcry, decided against its plans to open up foreign investment rules and in fact tightened the conditions around sales passed through the Overseas Investment Office. It gave the Overseas Investment Act 2005 “extra flexibility” to assess future bids for farmland — in other words, ministers essentially gave themselves the power of veto over deals involving large amounts of farmland or the establishment of large, vertically integrated
Of course, that hasn’t reversed the 150,000 hectares of farmland that has been sold to foreign owners in the past five years. It won’t likely change the sale of 4,000 hectares currently waiting to be rubber-stamped. Many of these sales, past and present, have flown completely under the radar.
Here’s but a sampling:
• 11 South Island dairy farms worth more than $100 million sold to German investors in early 2011;
• 26,131 hectares of land in Otago approved in January 2010 for sale to Israeli billionaire Shmuel Meitar;
• Big Sky Dairy Farms in the Maniatoto sold to United States-based Ivy League icon Harvard University for unspecified multi-millions the same year.
And while there was lots of hub-bub over Shania Twain and then-husband Mutt Lange buying up South Island high country many years ago, few seemed to care that Mutt is still sniffing around to add to his over $20million portfolio.
Not only that, but vast tracts of forestry and viticultural land are under foreign ownership, with Hong Kong-listed Greenheart Group, for example, having just signaled an intent to buy Mangakahia forestry assets in Northland.
This might sound to some like a landslide land grab, but proponents of foreign purchase of local farmland say that the levels of interest in New Zealand land aren’t a whole lot higher than what they have ever been.
Minister of Primary Industries David Carter, himself a South Island farmer for 30 years, says in that time interest in land has remained pretty constant. Moreover he perceives there’s a bit of a “media beat-up” going on around how much is actually on the block.
“New Zealand land is expensive by international standards,” he says. “Yes, we have a sound system of government, we have generally good weather and water access, but the real reason people would come here for farmland is the high level of intellectual property built up here over years and years of farming.”
Mr Carter says that many overseas buyers of New Zealand farmland do so for reasons that are “emotional” over business-oriented. Consequently they lose interest in the land at some point and put it back on the market. He himself sold a farm in North Canterbury to Americans that was on-sold several years later; even the famous Rothschild family brought land in Hickory Bay in the Banks Peninsula, only to quit the holding shortly thereafter.
But “the land never leaves,” he says.
And fears of a Chinese takeover are unfounded, according to some. If China wanted scale — large farms in secure countries that can offer guaranteed supply chains — there are better options than New Zealand says lawyer and vice chairman of the NZ China Trade Association, Richard Fyers.
“The Chinese interest is mostly in dairy and they would like just the raw material, or milk powder,” he says. “Or they want the technology so they can build a big agribusiness in China and elsewhere. China has an enormous number of people and entities with money and they will increasingly invest outside China. It would be surprising if we didn’t see some interest, especially to do with infant food made from milk — our core product — so at least for now that’s what they’ll concentrate on.”
Richard says some New Zealanders are “suspicious and ignorant” of the value of investing in China and are equally cautious about why Chinese would want to invest here. “As with other historical ‘waves’ of foreign investment—via the British or the Japanese—they will probably become sellers in due course.”
But without foreign interest, will there ever be the local buyers that can inject enough capital into the sector to keep it internationally viable? Three years ago, global economics took a dive and New Zealand’s rural land price bubble burst. In short order, banks lost their passion for the sector and started calling in some of the massive loans that were all too eagerly granted when times were good.
“Foreigners have capital and Kiwis don’t,” confirms Keith Woodford, professor of farm management and agribusiness at Lincoln University. “The only way we can buy farms is by borrowing. And the banks are not lending the way they were. By contrast, there are lots of foreigners who have equity capital to invest.”
“Currently the focus is on Chinese investors, but a lot of the big money is in the Middle East. European pension funds may also be interested in investing.”
He says there are factors that do make investing—specifically in New Zealand farmland—more attractive than many other countries. For one, land appreciates and, in New Zealand, capital gains on land are not taxed (except in exceptional circumstances) — unlike the United States or Australia.
“It’s also easy for a foreign firm to arrange its affairs so it pays minimal income tax in New Zealand — it does this by borrowing overseas. Current rules allow a foreign firm to charge interest in debt up to 65 per cent of the assets — which is known as ‘thin capitalisation’.
"It can register in a tax-free country, and then structure itself financially so that it transfers its operating profits to that country without paying tax in New Zealand.”
Keith says if New Zealand does stop investment from foreign-based firms, the price of land will drop further. It may mean that local farmers, and the much valued ‘up and comers’ attracted back into the sector, but with banks now asking for as much as 50 per cent equity up front from buyers, it may still be beyond the reach of many.
For Richard Fyers, the risks go beyond just drying up a source of capital. “We’d be reducing investment in building infrastructure and for growing production, and restricting the entry of foreign enterprises with fresh ideas and energy. Overseas agribusinesses and even New Zealand businesses with more than 25 per cent [foreign] ownership will increasingly prefer to invest and develop farms in other countries… worst of all, it will continue to be locals who bet their equity and often lose it to overseas debt providers who invariably get a royal risk-free return.”
But for Tony Bouchier and Save the Farms, the argument is not about rejecting foreign capital — or even foreigners — but about strictly controlling how business is done down on the iconic New Zealand farm.
“We are world leaders in dairying, and at a time where there are world food shortages, we have an amazing natural edge in the global market. All we are saying is let’s not give that away. Let’s not sell freehold land. Instead, let’s invite investors to come down here and work with us in production, or lease the land from us with the option to renew if certain conditions are met.
“Let’s use overseas investment where it’s needed — but let’s not sell off the family silver.”
A VIEW FROM THE GRASSFACE
Foreign ownership of prime New Zealand farmland, says BNZ head of agribusiness Richard Bowman, is nothing new. What has seemingly ruffled some feathers, and made the current landscape different, are the sources of capital influx and the reasons for acquisition.
There may be a world of other choices for buyers to consider, yet nothing seems to beat owning a piece of us. With shopping lists in hand, United States, European, Middle East and Asian eyes are looking south.
The Natural Dairy offer for the Crafar Dairy assets captured the headlines, says Bowman, but offshore interests have been buying land in this country for a considerable period of time.
“Historically the motivation behind this has purely been about owning and running farms. More recently, the focus has shifted to those wanting to establish vertically integrated businesses and the clear ‘value add’ of having branded ‘Product of New Zealand’ as part of their portfolio ‘mix’. Our reputation for efficient production systems, high quality capabilities, safe and consistent supply, are not bad attributes to trade off.”
In addition, says Bowman, the current land rush has been fuelled by recent dramatic rises in soft commodity prices mixed with the perception (real or otherwise) that the world food basket is getting bare but not here. Dietary trends are similarly evolving with many markets wanting a taste of Western fare.
“Add to that the widely accepted perception that we are global leaders in agriculture—both from a natural resource and IP/technology perspective—and it is little wonder that people want New Zealand agri-assets.”
Given that the rest of the planet seems so bullish about Farm New Zealand, the BNZ is equally ebullient—both for themselves and their clients.
“Almost all commodity prices have seen significant increases in recent times which offer the potential for good cash returns. Returns on capital in agribusiness are the highest they have been for decades and this will continue to underpin current asset values.”
From farming stock himself, Bowman uses the ageless adage of ‘making hay while the sun shines’ in advising farmers on how to optimise current cash resources.
"We are encouraging farmers to carefully plan what they do with any cash surpluses as good decisions now will create more opportunity over the coming decade. Cash is now likely to be a more important contributor to wealth generation for the coming decade than it has been for the last. Given that volatility in the industry is always a factor, there is all the more reason to use cash wisely.”
A number of items make up Bowman’s ‘watch list’ of agribusiness opportunities and issues.
“We have to do something about New Zealand meat companies competing against each other internationally. It’s a complex matter with no easy fix but worth focussing on to avoid the unnecessary transfer of wealth out of the country. At a time when every sector is being asked to up its productivity game, opportunities exist to better utilise water resources for irrigation. Family succession and the ageing local farming demographic is another challenge for the industry; however with increased returns this does create an opportunity to tackle this challenge.“
This story originally appeared in Primary magazine. Click here to subscribe.
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